Australia’s inflation fight is showing signs of renewed pressure, raising concerns that interest rates could remain higher for longer.

New figures show consumer prices increased 1% in July from the previous month, driven in part by a sharp rise in fuel costs. Annual inflation eased to 3.5%, but remained above the level economists had expected.

The bigger concern is underlying inflation. The trimmed-mean measure rose 0.5% in July, its strongest monthly increase in a year, keeping annual core inflation at 3.6%.

Housing costs are also continuing to climb. New dwelling prices were 5.7% higher than a year earlier, while rents increased 3.6%.

The latest figures have pushed financial markets to reassess the outlook for the Reserve Bank of Australia. Expectations for another rate increase in September have risen significantly, with markets now placing the probability at around 36%.

The RBA has already increased interest rates three times this year and currently holds the cash rate at 4.35%.

For Australian families and businesses, another increase could add to borrowing costs and make the cost-of-living challenge even harder.

With inflation proving stubborn, the RBA now faces a delicate balancing act between bringing prices under control and avoiding additional pressure on the economy.

The message from the latest data is clear: Australia’s inflation battle is far from over.